<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended FEBRUARY 29, 2000 Commission File Number 1-15147
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OMNOVA SOLUTIONS INC.
---------------------------------
(Exact name of registrant as specified in its charter)
OHIO 34-1897652
- ----------------------------- ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
175 GHENT ROAD FAIRLAWN, OHIO 44333-3300
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (330) 869-4200
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
At March 31, 2000, there were 39,681,001 outstanding shares of OMNOVA Solutions'
Common Stock, par value $0.10.
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OMNOVA SOLUTIONS INC.
<TABLE>
<CAPTION>
Table of Contents
Part I. Financial Information PAGE NO.
--------
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income -
Three Months Ended February 29, 2000 and
February 28, 1999 -3-
Condensed Consolidated Balance Sheets -
February 29, 2000 and November 30, 1999 -4-
Condensed Consolidated Statements of Cash Flows -
Three Months Ended February 29, 2000 and
February 28, 1999 -5-
Notes to the Unaudited Interim Condensed Consolidated
Financial Statements as of February 29, 2000 -6-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations -10-
Item 3. Quantitative and Qualitative Disclosure About Market Risk -13-
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders -13-
Item 6. Exhibits and Reports on Form 8-K -14-
Signatures -15-
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OMNOVA SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------
February 29, February 28,
2000 1999
-------------- --------------
<S> <C> <C>
NET SALES $ 182.2 $ 171.2
COSTS AND EXPENSES
Cost of products sold 127.1 109.7
Selling, general and administrative 40.5 37.4
Depreciation and amortization 8.6 7.9
Interest expense 3.9 4.9
Other (income) expense, net (.4) --
Unusual items .5 --
--------- ---------
180.2 159.9
--------- ---------
INCOME BEFORE INCOME TAXES 2.0 11.3
Income tax provision .8 4.5
--------- ---------
NET INCOME $ 1.2 $ 6.8
========= =========
EARNINGS PER SHARE OF COMMON STOCK
Basic $ .03 $ .16
Diluted $ .03 $ .16
Average shares outstanding (in thousands)
Basic 41,387 41,582
Diluted 41,493 42,036
Cash dividends paid per share of common stock $ .05 $ .15
</TABLE>
See notes to the unaudited interim condensed consolidated financial statements.
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OMNOVA SOLUTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
February 29, November 30,
2000 1999
--------------- ----------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $ 8.3 $ 10.5
Accounts receivable, net 119.3 122.0
Inventories 68.4 68.4
Deferred income taxes 11.6 11.6
Prepaid expenses and other 8.9 9.3
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TOTAL CURRENT ASSETS 216.5 221.8
Property, plant and equipment, net 214.1 212.0
Goodwill, net 156.7 158.4
Patents and other intangible assets, net 77.4 78.4
Prepaid pension 42.2 41.4
Other assets 10.8 10.5
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TOTAL ASSETS $ 717.7 $ 722.5
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES
Notes payable $ 14.0 $ 10.5
Accounts payable 74.5 82.9
Accrued payroll and personal property taxes 12.7 16.7
Other current liabilities 18.5 20.3
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TOTAL CURRENT LIABILITIES 119.7 130.4
Long-term debt 205.0 190.0
Postretirement benefits other than pensions 51.5 51.7
Deferred income taxes 16.3 16.3
Other liabilities 18.3 19.4
Preference stock - $1.00 par value; 15 million shares authorized;
none outstanding -- --
Common stock - $0.10 par value; 135 million shares authorized;
41.8 million shares outstanding 4.2 4.2
Additional contributed capital 308.5 308.5
Retained earnings .9 1.8
Accumulated other comprehensive (loss) income (1.0) .2
Cost of shares of common stock in treasury
(770,300 shares in 2000; none in 1999) (5.7) --
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 306.9 314.7
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 717.7 $ 722.5
========== ==========
</TABLE>
See notes to the unaudited interim condensed consolidated financial statements.
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<PAGE> 5
OMNOVA SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
February 29, February 28,
2000 1999
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1.2 $ 6.8
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for unusual items .5 --
Depreciation, amortization and (gain)/loss on disposal of fixed assets 8.6 6.4
Changes in operating assets and liabilities net of effects of
acquisitions and dispositions of businesses:
Current assets 2.6 (1.4)
Current liabilities (14.2) (25.9)
Other non-current assets (.1) 11.6
Other non-current liabilities (1.3) --
-------- ---------
NET CASH USED BY OPERATING ACTIVITIES (2.7) (2.5)
-------- ---------
INVESTING ACTIVITIES
Capital expenditures (9.0) (7.2)
Proceeds from business and asset dispositions -- 9.0
Business acquisitions -- (3.3)
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NET CASH USED IN INVESTING ACTIVITIES (9.0) (1.5)
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FINANCING ACTIVITIES
Long-term debt incurred 30.0 --
Long-term debt paid (15.0) --
Net short-term debt incurred 3.5 --
Dividends (2.1) --
Purchase of treasury shares (5.7) --
Other (1.2) --
Net transactions with GenCorp Inc. -- 3.4
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9.5 3.4
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NET DECREASE IN CASH AND EQUIVALENTS (2.2) (.6)
Cash and equivalents at beginning of year 10.5 3.5
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Cash and equivalents at end of period $ 8.3 $ 2.9
========= ========
</TABLE>
Cash paid for interest and income taxes was $4.0 million and $2.9 million for
the three months ended February 29, 2000. Cash paid for interest and income
taxes for the three months ended February 28, 1999 was paid by GenCorp Inc. and
was included in net transactions with GenCorp Inc. prior to the spin-off.
See notes to the unaudited interim condensed consolidated financial statements.
-5-
<PAGE> 6
OMNOVA SOLUTIONS INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 29, 2000
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and, therefore,
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. These interim
statements should be read in conjunction with the financial statements and notes
thereto included in the OMNOVA Solutions Inc. (OMNOVA Solutions or the Company)
Annual Report on Form 10-K for the fiscal year ended November 30, 1999.
OMNOVA Solutions develops, manufactures and markets emulsion polymers,
specialty chemicals and decorative and building products for a variety of
industrial, commercial and consumer markets. Prior to September 30, 1999, the
OMNOVA Solutions businesses were operated as divisions of GenCorp Inc.
(GenCorp). On September 30, 1999, GenCorp transferred to OMNOVA Solutions
certain corporate assets and the assets related to these businesses and OMNOVA
Solutions assumed liabilities related to the assets and businesses transferred
and issued shares of common stock to GenCorp. On October 1, 1999, GenCorp
distributed as a dividend to its shareholders one share of OMNOVA Solutions
common stock for each share of GenCorp common stock held of record as of
September 27, 1999 (the spin-off). As a result of the spin-off, OMNOVA Solutions
became an independent, publicly held company and its operations ceased to be
owned by GenCorp. GenCorp and OMNOVA Solutions have entered into a number of
agreements with respect to the separation of the companies and to provide
mechanisms for an orderly transition following the spin-off.
Financial data included in the accompanying unaudited interim consolidated
financial statements for the three month period ended February 28, 1999 were
prepared on a combined basis; however, for financial statement reporting
purposes, the financial statements for all periods presented are labeled as
consolidated. They reflect the historical operations of OMNOVA Solutions
businesses prior to the spin-off.
As indicated in the notes to the audited financial statements included in
the annual report, GenCorp provided certain general and administrative services
to OMNOVA Solutions prior to the spin-off. The cost for these services was
allocated to OMNOVA Solutions based upon a formula that included sales, gross
payroll, and average invested capital. Management of OMNOVA Solutions believes
that the allocation of cost for these services is reasonable.
All normal recurring accruals and adjustments considered necessary for a
fair presentation of the unaudited results for the three month period ended
February 29, 2000 have been reflected. The results of operations for the three
month period ended February 29, 2000 are not necessarily indicative, if
annualized, of those to be expected for the full fiscal year.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Segment operating profit represents net sales less applicable costs and
expenses relating to operations. Segment operating profit excludes corporate
income and expenses, provisions for unusual items, interest expense and income
taxes.
Certain reclassifications have been made to conform prior year's data to the
current presentation.
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<PAGE> 7
NOTE B - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Unaudited
Three Months Ended
February 29, February 28,
(Dollars in millions, except per share amounts and shares in thousands) 2000 1999
--------------- ---------------
<S> <C> <C>
NUMERATOR
Net income $ 1.2 $ 6.8
======= ======
DENOMINATOR
Denominator for basic earnings per share -
weighted average shares 41,387 41,582
Effect of dilutive securities:
Employee stock options 106 435
Other -- 19
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Dilutive potential common shares 106 454
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Denominator for diluted earnings per share -
adjusted weighted average shares and assumed conversions 41,493 42,036
====== ======
EARNINGS PER SHARE OF COMMON STOCK
Basic $ .03 $ .16
======= ======
Diluted $ .03 $ .16
======= ======
</TABLE>
On November 29, 1999, OMNOVA Solutions announced that its Board of Directors
authorized the purchase from time to time of up to $25 million of OMNOVA
Solutions' common stock. The stock repurchases may be made over a period of up
to 18 months, principally through open market transactions or in
privately-negotiated transactions in accordance with applicable regulations of
the Securities and Exchange Commission. Depending on market conditions and other
factors, such purchases may be commenced or suspended at any time without prior
notice. During the first quarter of 2000, approximately 770,000 shares were
repurchased at a total cost of $5.7 million.
NOTE C - COMPREHENSIVE INCOME
During the quarters ended February 29, 2000 and February 28, 1999 total
comprehensive income was $0 and $6.6 million, respectively. The change from net
income relates primarily to the effects of foreign currency translations.
NOTE D - ACQUISITIONS, DIVESTITURES AND OTHER MATTERS
On April 27, 1999, OMNOVA Solutions acquired the global latex floor care
business of Morton International Inc. for $8 million. On December 2, 1998, the
Company acquired the U.S. acrylic emulsion polymers business of PolymerLatex,
located in Fitchburg, Massachusetts, for $9 million, consisting of cash of $3
million and a note payable of $6 million due December 1, 1999. The acquisitions
were accounted for using the purchase method and were included in the results of
operations of OMNOVA Solutions from the respective dates of acquisition.
On August 4, 1999, OMNOVA Solutions formed a joint venture company with
Thailand-based Charoen Pokphand Group. The new company, CPPC Decorative Products
Co., Ltd., will serve the decorative PVC film and fabric markets in the
Asia-Pacific region and provide expanded product lines to North America and
Europe. The Company's initial investment in this joint venture was $2.6 million
and is being accounted for using the equity method.
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<PAGE> 8
NOTE E - RECEIVABLE LOSS PROVISION
During the first quarter of fiscal 2000, the Company recorded a $0.5 million
charge related to a loss recognized for fully reserving an accounts receivable
balance due from a customer that filed for bankruptcy.
NOTE F - INVENTORIES
Inventories are stated at the lower of cost or market value. A portion of
the inventories is priced by use of the last-in, first-out (LIFO) method using
various dollar value pools. Interim LIFO determinations involve management's
judgments of expected year-end inventory levels. Components of inventory are as
follows:
<TABLE>
<CAPTION>
February 29, November 30,
(Dollars in millions) 2000 1999
---------------- ---------------
<S> <C> <C>
Raw materials and supplies $ 29.6 $ 31.1
Work-in-process 6.0 5.9
Finished products 65.1 65.6
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Approximate replacement cost of inventories 100.7 102.6
Reserves, primarily LIFO (32.3) (34.2)
--------- ---------
$ 68.4 $ 68.4
========= =========
NOTE G - PROPERTY, PLANT AND EQUIPMENT, NET
February 29, November 30,
(Dollars in millions) 2000 1999
----------------- ----------------
Land $ 9.6 $ 9.7
Building and improvements 89.4 89.5
Machinery and equipment 295.2 296.7
Construction in progress 24.9 16.3
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419.1 412.2
Accumulated depreciation (205.0) (200.2)
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$ 214.1 $ 212.0
========== ==========
</TABLE>
NOTE H - LONG-TERM DEBT AND CREDIT LINES
On September 30, 1999, the Company entered into a five-year unsecured $300
million revolving credit facility (Facility) which expires in September 2004. At
February 29, 2000, the unused and available balance under this Facility was $95
million. The Company pays a variable commitment fee, which is currently .30 of
one percent, on the unused balance. Interest rates are variable, primarily based
on LIBOR, and were at an average rate of 7.2% at February 29, 2000. The Facility
contains various debt, dividend and investment restrictions and provisions
requiring maintenance of an earnings before interest, taxes, depreciation and
amortization to interest coverage (EBITDA/Interest Expense) ratio of 3.5 to 1.00
and debt to earnings before interest, taxes, depreciation and amortization
(Debt/EBITDA) ratio of 3.25 to 1.00. The Facility was utilized to fund a $200
million dividend paid to GenCorp at the time of the spin-off and is also
available for working capital, capital expenditures and acquisition needs.
At February 29, 2000, the Company had unsecured, uncommitted lines of credit
with several banks for short-term borrowings aggregating $25 million, of which
$14 million was outstanding. Interest rates for these lines of credit were
variable and were at an average rate of 6.8% on February 29, 2000. Borrowings
under such lines are payable on demand. The Company also had outstanding letters
of credit totaling $0.7 million at February 29, 2000.
-8-
<PAGE> 9
NOTE I - CONTINGENCIES
OMNOVA Solutions is subject to various legal actions and governmental
proceedings. In the opinion of management, after reviewing the information which
is currently available with respect to such matters and consulting with legal
counsel, any liability which may ultimately be incurred with respect to these
matters will not materially affect future results of operations, liquidity or
financial condition of the Company.
NOTE J - SEGMENTS
The Company operates two business segments, Decorative & Building Products
and Performance Chemicals. The Company's reportable segments are strategic
business units that offer different products and services.
Segment operating profit represents net sales less applicable costs and
expenses relating to operations. Segment operating profit excludes corporate
income and expense, provisions for unusual items, interest expense and income
taxes.
The following table sets forth a summary of operations for the quarter by
segment and a reconciliation to consolidated income before taxes:
<TABLE>
<CAPTION>
Three Months Ended
February 29, February 28,
(Dollars in millions) 2000 1999
--------------- ---------------
<S> <C> <C>
NET SALES
Decorative & Building Products $ 101.8 $ 97.5
Performance Chemicals 80.4 73.7
--------- ---------
$ 182.2 $ 171.2
INCOME
Decorative & Building Products $ 9.0 $ 11.6
Performance Chemicals .2 5.8
--------- ---------
SEGMENT OPERATING PROFIT 9.2 17.4
Interest expense (3.9) (4.9)
Corporate other income (expense) (.8) --
Corporate expenses (2.0) (1.2)
Unusual items (.5) --
--------- ---------
Income before taxes $ 2.0 $ 11.3
========= =========
</TABLE>
-9-
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
RESULTS OF OPERATIONS THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
Net sales for the OMNOVA Solutions businesses in the first quarter of 2000
increased 6% to $182 million compared to $171 million in the first quarter of
1999. Sales increased in both Decorative & Building Products and Performance
Chemicals, led by increases in specialty chemicals, building systems, coated
fabrics and paper chemicals. Total segment operating profit declined to $9
million for the first quarter of 2000 versus $17 million in the first quarter of
1999. Operating margins decreased to 5.0% in the first quarter of 2000 compared
to 10.2% in the first quarter of 1999, primarily due to rapidly escalating raw
material costs for both operating segments, as well as product mix in Decorative
& Building Products and lower average unit selling prices across certain
Performance Chemicals product lines. These raw material price increases could
not be offset fully by increased sale prices. Net income decreased to $1 million
in the first quarter of 2000 compared to $7 million in the first quarter of
1999. The decrease was a direct result of escalating raw material prices which
were only partially offset by the improvement in sales and unit volume growth.
As a result, diluted earnings per share declined to $.03 per share in the first
quarter of 2000 from $.16 per share in the first quarter of 1999.
Net sales for Decorative & Building Products increased for the first quarter
of 2000 by 4% to $102 million compared to $98 million in the first quarter of
1999. Sales increased in building products, coated fabrics and decorative
laminates due to new product introductions and marketing initiatives, while
sales declined modestly in wallcoverings. Segment operating profit during the
first quarter of 2000 declined to $9 million from $12 million for the first
quarter of 1999. Segment operating margins declined to 8.8% in the first quarter
of 2000 from 11.9% for the first quarter of 1999, due primarily to higher raw
material prices and product mix. PVC resin costs increased over 50% versus last
year or approximately $2 million, with additional increases expected to continue
through the first half of 2000. In response, the business unit successfully
implemented price increases across all of its product lines. The price
increases, which have lagged cost increases, are expected to result in improved
margins in future quarters, unless they are outpaced by unexpected additional
increases in raw material costs.
Net sales for Performance Chemicals increased for the first quarter of 2000
by 9% to $80 million compared to $74 million in the first quarter of 1999. The
increase reflects volume increases of 13%, including a 5% effect for acquired
businesses, compared to 1999, while pricing was down slightly. Segment operating
profit during the first quarter of 2000 was $0.2 million versus $6 million in
the first quarter of 1999. Segment operating margins declined to 0.2% in the
first quarter of 2000 versus 7.9% in the 1999 first quarter. The decline is
primarily due to significantly higher raw material prices and lower average unit
selling prices in the paper market. During the quarter, raw material pricing for
styrene and butadiene monomers increased 52% and 36% respectively versus last
year, adversely impacting operating profit by almost $7 million. Further raw
material price increases are expected in the second quarter of 2000. The Company
has successfully introduced product price increases in the specialty chemicals,
carpet and textile markets.
FINANCIAL RESOURCES AND CAPITAL SPENDING
Cash flow used by operating activities for the first three months of 2000
was $2.7 million as compared to $2.5 million in the first three months of 1999.
For the first three months of 2000, $9.0 million was used for investing
activities, primarily for capital expenditures. This is compared to $1.5 million
used for investing activities in the first three months of 1999, which included
the acquisition of the Fitchburg, Massachusetts facility for $8.8 million (of
which $3.3 million was paid in cash), capital expenditures of $7.2 million, and
an offset of $9.0 million from proceeds from asset dispositions.
-10-
<PAGE> 11
FINANCIAL RESOURCES AND CAPITAL SPENDING (CONTINUED)
Cash flow provided by financing activities for the first three months of
fiscal 2000 was $9.5 million compared to $3.4 million in the first three months
of fiscal 1999. The increase in financing activities resulted from OMNOVA
Solutions share repurchase program initiated in the first quarter of 2000.
Depending on market conditions and other factors, management expects to
repurchase approximately three million shares in the second quarter of 2000.
As described in footnote H on page 8, the Company has an unsecured $300 million
revolving credit facility which expires in September 2004. At February 29, 2000,
the unused and available balance under this Facility was $95 million. The
Company pays a variable commitment fee, which is currently .30 of one percent,
on the unused balance. Interest rates are variable, primarily based on LIBOR and
were at an average rate of 7.2% at February 29, 2000. The Facility is available
for working capital, capital expenditures, the share repurchase program and
acquisition needs.
Based upon current and anticipated levels of operations and plans for
integrating recent acquisitions, management believes that cash flow from
operations, combined with borrowings that are available under the credit
facility, will be sufficient to enable the Company to meet its current and
anticipated cash operating requirements, including scheduled interest and
principal payments, capital expenditures and working capital needs for the next
twelve months. However, actual capital requirements may change, particularly as
a result of any acquisitions which the Company may make. The Company's ability
to meet its current and anticipated operating requirements will be dependent
upon the Company's future performance which, in turn, will be subject to general
economic conditions and to financial, business and other factors, including some
factors beyond the Company's control. Depending on the nature, size and timing
of future acquisitions, OMNOVA Solutions may be required to raise additional
financing. In addition, the tax rules related to the spin-off may limit OMNOVA
Solutions' ability for a period of time to fund acquisitions through the
issuance of equity securities. Substantially all of the debt of OMNOVA Solutions
will bear interest at variable rates; therefore, its liquidity and financial
condition are and will continue to be, affected by changes in prevailing
interest rates.
ENVIRONMENTAL MATTERS
OMNOVA Solutions' policy is to conduct its businesses with due regard for
the preservation and protection of the environment. OMNOVA Solutions devotes
resources and management attention to environmental matters and actively manages
its ongoing processes to comply with extensive environmental laws and
regulations. OMNOVA Solutions' Condensed Consolidated Balance Sheet as of
February 29, 2000 reflects environmental reserves of $1.2 million.
Management believes, on the basis of presently available information, that
resolution of environmental matters will not materially affect future results of
operations, liquidity, capital resources or the consolidated financial condition
of the Company.
-11-
<PAGE> 12
INFORMATION SYSTEMS AND THE YEAR 2000
The Company completed a comprehensive project to upgrade its information,
technology and manufacturing and facilities computer hardware and software
programs to address the Year 2000 issue. The project consisted of an iterative
process of remediating, testing and implementing new software as required. The
Company spent approximately $4.5 million on the project and funded it through
operating cash flows. The Company also contacted each of its major customers and
vendors to determine whether they were also Year 2000 compliant. The Company has
not experienced any material Year 2000 problems.
ADOPTION OF THE EURO
Management believes that the adoption of the Euro by the European Economic
Community will not have a material impact on the Company's international
businesses. The Company's foreign operations currently are small and each
operation conducts the majority of its business in a single currency with
minimal price variations between countries.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements as
defined by the Private Securities Litigation Reform Act of 1995. These
statements present (without limitation) the expectations, beliefs, plans and
objectives of management and future financial performance and/or assumptions
underlying or judgments concerning matters discussed in this report. These
discussions and any other discussions contained in this report, except to the
extent that they contain historical facts, are forward-looking and accordingly
involve estimates, assumptions, judgments and uncertainties; in particular, this
pertains to management's comments on financial resources and capital spending.
The outcomes of forward-looking statements and material contingencies could
differ materially from those discussed due to inherent economic risks and
changes in prevailing governmental policies and regulatory actions. In addition
to certain contingency matters and their respective cautionary statements
discussed in the Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1999, the Forward-Looking Statements section of this Management's
Discussion and Analysis indicates some important factors that could cause actual
results or outcomes to differ materially from those addressed in the
forward-looking statements.
Some important factors that could cause OMNOVA Solutions' actual results or
outcomes to differ from those expressed in its forward-looking statements
include, but are not limited to, the following:
- General economic trends affecting OMNOVA Solutions' markets
- Governmental and regulatory policies including environmental
regulations
- OMNOVA Solutions' acquisition activities
- Raw material prices for chemical feed stocks including polyvinyl
chloride, styrene and butadiene
- Fluctuations in exchange rates of foreign currencies and other risks
associated with foreign operations
Additional risk factors may be described from time to time in OMNOVA
Solutions' filings with the Securities and Exchange Commission. All these risk
factors are difficult to predict, contain material uncertainties that may affect
actual results and may be beyond OMNOVA Solutions' control.
-12-
<PAGE> 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- -----------------------------------------------------------------
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on
long-term debt obligations. OMNOVA Solutions' policy is to manage its interest
rate exposures through the use of a combination of fixed and variable rate debt.
Currently the Company does not use derivative financial instruments to manage
its interest rate risk. Substantially all of OMNOVA Solutions' long-term debt,
which is under the revolving credit facility described in Note H on page 8,
matures in the year 2004 and is variable. The average variable interest rate
applicable to this debt was 7.2% as of February 29, 2000. Since OMNOVA
Solutions' long-term debt under this agreement bears interest at market rates,
the carrying value approximates fair value.
Although OMNOVA Solutions conducts business in foreign countries,
international operations were not material to the Company's consolidated
financial position, results of operations or cash flows as of February 29, 2000.
Additionally, foreign currency transaction gains and losses were not material to
OMNOVA Solutions' results of operations for the three months ended February 29,
2000. While international operations have not been significant in the past, the
Company could be subject to material foreign currency exchange rate risk with
respect to future operations and cash flows due to OMNOVA Solutions' acquisition
of the European wallcovering business in late 1998. To date, the Company has not
entered into any significant foreign currency forward exchange contracts or
other derivative financial instruments to hedge the effects of adverse
fluctuations in foreign currency exchange rates, but will continue to evaluate
the future use of these financial instruments.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
At the Company's Annual Meeting of Shareholders held on March 29, 2000,
holders of OMNOVA Solutions Common Stock elected Dr. R. Byron Pipes, John B.
Yasinsky and Kevin M. McMullen as directors to serve a three year term expiring
in 2003.
Shareholders also ratified the Board of Directors' appointment of Ernst &
Young LLP as the Company's independent auditors for 2000.
Following is the final result of the Common votes cast:
A) Election of Directors:
For Withheld Broker Nonvotes
Dr. R. Byron Pipes 36,704,457 960,740 -0-
---------- ------- ---
John B. Yasinsky 37,122,453 542,744 -0-
---------- ------- ---
Kevin M. McMullen 37,206,348 458,849 -0-
---------- ------- ---
B) Ratification of the Board of Directors' appointment of Ernst & Young LLP as
independent auditors:
For: 37,448,228 Against: 131,689 Abstain: 85,280 Broker Nonvotes: -0-
---------- ------- ------ ---
-13-
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
a) EXHIBITS
Table Exhibit
Item No. Exhibit Description Number
------------------------------------------------------------------
27 Financial Data Schedule 27
(Filed for EDGAR only)
b) REPORTS ON FORM 8-K
OMNOVA Solutions filed a report on Form 8-K on December 6, 1999
incorporating its press release dated November 29, 1999 discussing
its fourth quarter earnings outlook and announcing a stock
repurchase plan.
-14-
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OMNOVA SOLUTIONS INC.
Date April 12, 2000 By /s/ M. E. HICKS
------------------ --------------------------------
M. E. Hicks
Senior Vice President and Chief
Financial Officer
Date April 12, 2000 By /s/J. C. LEMAY
------------------- -------------------------------
J. C. LeMay
Senior Vice President, Law;
General Counsel
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-2000
<PERIOD-END> FEB-29-2000
<CASH> 8,300
<SECURITIES> 0
<RECEIVABLES> 125,000
<ALLOWANCES> 5,700
<INVENTORY> 68,400
<CURRENT-ASSETS> 216,500
<PP&E> 419,100
<DEPRECIATION> 205,000
<TOTAL-ASSETS> 717,700
<CURRENT-LIABILITIES> 119,700
<BONDS> 0
0
0
<COMMON> 4,200
<OTHER-SE> 302,700
<TOTAL-LIABILITY-AND-EQUITY> 717,700
<SALES> 182,200
<TOTAL-REVENUES> 182,200
<CGS> 127,100
<TOTAL-COSTS> 176,200
<OTHER-EXPENSES> (400)
<LOSS-PROVISION> 500
<INTEREST-EXPENSE> 3,900
<INCOME-PRETAX> 2,000
<INCOME-TAX> 800
<INCOME-CONTINUING> 1,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,200
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
